Building conversions set to increase

Retrofitting buildings will become more common as stock ages or needs to be redesigned.

All buildings have a use-by date. At some point in their life cycle they need to be razed, restored or given a new lease of life through adaptive reuse.

Hundreds of industrial warehouses in Melbourne have been converted into multi-unit dwellings in the past 15 years. Not surprisingly, given the great locations of many older buildings, developers are also transforming outdated office blocks, breweries and even grain-storage silos into cutting-edge apartments.

But what lies ahead for today's high and medium-density apartment buildings? How will individual unit owners retrofit a 20-storey building when the time comes for an extensive overhaul?

That time might come sooner than many of us think. Urban planners say the declining international student market to Australia is already hitting demand for purpose-built student accommodation.

Planning specialists say the issue is compounded by many new apartments being extremely small and unlikely ever to be widely accepted by Australian households. As a result, some lower-end residential towers might need to be significantly revamped, which could involve knocking out walls and amalgamating units to create larger dwellings.

Just how such sweeping changes to a building can be achieved under Victoria's fairly relaxed strata title laws remains to be seen. Strata regulations require 75 per cent agreement by unit owners for any building improvement to be given the green light.

Australia's education market is facing strong new threats. The head of housing studies at Swinburne University, Terry Burke, says other countries such as Canada, England and the US have discovered the financial attraction of international students.

He says Australian universities are now in a far more competitive environment, adding that education and housing costs are considerably lower in some of the competing countries.

Michael Buxton, a planning specialist with RMIT University, says the apartment industry focuses on highly targeted markets. These include investors buying student units, single people and first-home buyers offered specific one and two-bedroom unit types.

''Each of these types is so tightly targeted that if there is a global change we will have a large number of dwellings that would not be suitable for much else,'' he says.

Progress in technology and economics moves at a lightning speed compared with the built environment. This means cities have little choice but to upgrade some existing buildings to create additional housing and commercial precincts.

Architect Nonda Katsalidis' Hero Apartments conversion in Russell Street is a fine example of adaptive reuse. A 1954 building that was the Russell Street Telephone Exchange and Post Office is now a boutique apartment building, complete with a contemporary retail section and the addition of several extra floors.

Importantly, the new building retains the original structure's smart metal grille work and stylised granite Doric columns.

There are many other old-is-new constructions on a large scale - the Tribeca apartment towers rising high above the shell of East Melbourne's Victoria Brewery, for instance, or Richmond's Malthouse Apartments, another of Katsalidis' projects, which have transformed 1920s grain silos.

But these projects have occurred on sites owned by one investor group or one company. That makes redevelopment a relatively uncomplicated proposition.

The big challenge with upgrading apartment buildings lies in securing agreement from the hundreds of individuals who can jointly own a single building through strata titles.

Anthony Wilkinson, the head of owners corporation advisory services at lawyers McKean Park, says the sinking (or maintenance) funds run in many high-density buildings are often not supported by owners.

Sinking funds collect money to pay for long-range projects such as replacing windows or repainting the structure every 10 years. Mr Wilkinson says owners frequently ''fight tooth and nail'' not to have a sinking fund.

Stephen Raff, Victorian president of industry group Strata Community Australia, agrees there is a huge problem in convincing owners to spend money on maintenance, let alone improvements.

In any owners corporation a majority vote is required to win approval to pay for maintenance and repairs to common property.

Mr Raff says it's much harder to achieve 75 per cent agreement to improve a property by, for example, rendering external walls or updating the lobby. This is partly because many unit owners are overseas investors.

Professor Buxton says there is a big variation in building quality between upmarket and budget towers. ''The low end of the market tends to have very poor noise standards,'' he says. ''The noise performance between units is very poor and a lot of buildings are being constructed on main roads with poor sound insulation.''

He says changes in energy use and environmental standards will impact heavily on future sales. ''People are going to want higher-quality buildings that will last and be more resilient. Yet a lot of buildings have been constructed in the past decades, and even recently, that I suspect people are not going to want; they're going to be very hard to sell.''

Many professional strata managers believe any owners corporation of 10 or more units should be required by law to run a sinking fund.

This would cover about 80 per cent of strata properties. At the moment, though, only buildings with more than 100 units, or a yearly maintenance budget of $200,000-plus, are legally required to commission a third-party assessment on whether they need a sinking fund.

These large buildings account for less than 5 per cent of strata properties and the members of their owners corporations can still vote against introducing a sinking fund regardless of advice.

Mr Raff says sinking funds allow buildings to maintain high standards ''so you don't get the situation where balconies have concrete cancer in them and are crashing to the ground when too many people stand on them''.

According to Professor Buxton, many student unit complexes offer guaranteed returns of 10 per cent or 12 per cent a year.

''They are a good investment for a lot of people because you are able to buy into them fairly cheaply and get a good return,'' he says. ''But they are vulnerable to change and investors could be hurt.''

If the crunch comes and buildings have to be adapted quickly, state governments around the country may need to step in.

''Governments can change legislation to make it easier to amalgamate titles and for people to be bought out so that you can make bigger apartments,'' Professor Buxton says.

As the apartment boom continues, buyers need to take a good look at the cityscape they're buying into.

At an investment expo in Melbourne, property adviser Chris Gray, of the Empire group, pointed out that banks rarely lend more than 80 per cent of the purchase price of a city-centre apartment. Most banks, though, will provide a 95 per cent loan to 5 per cent equity ratio for many other types of residential property.

''Banks don't want massive exposure to massive buildings where every single property looks exactly the same,'' Mr Gray told the seminar. ''If the banks don't like it, perhaps it is a warning that you shouldn't, too.''